Good governance means having great people at the top looking out for the company. But how much should a company pay for a good director? In this TV show Caroline Newsholme discusses pay vs performance. Good governance comes at a price You should certainly pay for talent. And [...]

Good governance means having great people at the top looking out for the company. But how much should a company pay for a good director? In this TV show Caroline Newsholme discusses pay vs performance. Good governance comes at a price You should certainly pay for talent. And [...]

Corporate governance issues arising from boardroom structure includes how much each member should be paid for what they are expected to do, as Rob Wirszycz discusses in this TV show.

Corporate governance issues - Defining roles

Remuneration is a really sticky area in a sense. Actually, if I’m a Non-Executive Director I don’t expect to own any shares. My belief is that a Non-Executive Director is there to be completely objective. And I’ve been in many Board meetings where effectively the Board meeting is a meeting of the shareholders. Self-interest always wins in those meetings. So if I’m a Non-Executive Director in a meeting and I’m there, my job, I’ll accept a retain, a relatively small retainer, depending on what they want me to do. If they do anything away, outside of the brief, my belief is that that should be paid for separately. But so just to be a Non-Executive Director, I would like to be paid for the very clear, clearly-defined, but I don’t want, expect any shares. As a Chairman it’s different. Now the Chairman, I’m acting on behalf of the shareholders, so I actually have to have alignment with them, so what I always ask for when I’m Chairman is again a retainer, which is a small amount of money, relatively small amount of money, but I want to be able to earn shares based on the achievement of the plan. So if we achieve the plan, which I’m owning, then I believe that I should be aligned with the shareholders’ interests and I should be able to earn in shares into the business.

Business communication about director pay is important

Business communication between company leaders, shareholders and the workforce explaining the reasoning of a director's pay could help satisfy everyone. Caroline Newsholme explains further in this TV show.

Business communication is vital

A lot of shareholders probably feel dissatisfied and feel that director’s remuneration is more and more out of kilter, in some instances, with reality. When you look at what some directors are being paid it does feel a very long way from the average wage of a shareholder or a member of the workforce of that particular organisation, so there is bound to be increasing focus on what directors are being paid and how they are being rewarded. I think people just want to understand that they’re worth it and that it is justified.

Analysing data for court

Analysing data to show profit and loss is more complicated than it may first seem, and will be done best by a forensic accountant. Doug Hall of Smith and Williamson says it’s about presenting the right information in court.

Analysing data forensically

Probably the best way of illustrating that is a lot of cases that we get involved in, we get involved at a later stage, so the case has been running for some time. Because parties to litigation tend to focus because they’re guided by the lawyers, firstly on liability and quantum is left as a second stage. And we’re often involved in cases where the quantum has been estimated by the in house accountant, it’s the first time they’ve done it and may seem simple to actually work out that you’ve lost this much in sales and this is the profit on it, but there’s all kinds of nuances and techniques that are used and really what a good forensic accountant should be doing is to anticipate how, if you’re acting for a claimant, to anticipate how it would be defended. For example you may say that my sales have been growing at 5% a year, year on year out, and if you hadn’t caused by business to fail then I would have got another 5% in growth, but that doesn’t necessarily follow, you need to look behind the headline evidence and to look at it from every angle. There is no single right answer and the key thing in my practice is whatever opinion I come up with I need to be thinking ‘There is a counter argument to this’, because ultimately the decision by the court or the tribunal is based on the balance of probability. There’s been some sort of breach, so therefore the claimant wants to be put back in the position they would have been, but for that breach and of course that position didn’t happen, so it’s what might have been. So the short answer is there’s lots of different ways of analysing the data and there’s lots of different ways of presenting it, there’s no single right answer but an experienced forensic accountant knows what works with a court and what doesn’t. And of course there is various conceptual issues, that you can be technically wrong in how you calculate damages and we’ve seen that many times.

If you enjoyed this video about analysing data, then why not watch more TV shows on Inside Finance?

Business benefits of evaluation

There are business benefits to doing evaluations before making purchases, and there are also times when evaluations are necessary. In this TV show John Rugman explains why and when businesses need to be evaluated.

Business benefits from proper assessment

Evaluation is required for a number of different circumstances, it might be that you’re selling a business and you want to know what the value of that business is in advance of the process. It might be that you’re wanting to grant some share options or some shares to employees in that business, in which case you’re going to need evaluation for tax purposes. Or it could be that you need to report some fair values in your accounts and need some input into what those might be.
So there can be substantial amounts of money at stake. I’m conscious of one client where we assisted them in relation to a potential purchase of that business and we managed to raise the initial offer for that business by 50%, so they achieved a price 50% higher than they would otherwise have achieved.

If you enjoyed this video about the business benefits of evaluations, why not browse more TV Shows on Inside Finance.

Financial Reporting in 5 years time

Financial Reporting will show how reformed in the financial industry are being implemented. Caroline Newsholme discusses reporting director pay.

Financial reporting creates transparency

I think it does very much depend on the economic climate at the time. With the collapse of the banks and a couple of other very high profile individuals who’ve received very substantial pay offs where their companies have failed. It’s obviously topical and the media are going to pick up on substantial director’s packages. I think there’s probably less risk of that if the economy is performing and there are less examples of business going to the wall. I think when things are tough, everybody’s looking at what everybody else is being paid. I would like to say that in five years’ time I think that some of the reforms that are being introduced now will have been further refined. They’ll have had a chance to settle in and people can see how they work and whether they work and will have made any adjustments accordingly. I think there is still going to be quite a substantial level of reporting going forward once the reforms come in. With detailed reports obviously comes the risk that detail gets buried or people don’t quite appreciate the significance. So I think we have got to be careful that we don’t replace one reporting system with another, which ends up looking pretty similar to what we’ve already got. But I think it’s definitely a move for good at the moment anything which is designed to more closely link pay and performance and to not reward failure has got to be a good thing and it’s certainly higher up the corporate agenda, and I think that that’s got to be to our advantage, and hopefully we will see the benefit of this as the economy picks up and companies prove their performance in time.

Inside Finance has more TV shows about financial reporting and will continue to follow discussions about reforms and legislations that affect business.

Financial reporting and pay policy challeges

Financial reporting of pay is complicated. In this TV show Caroline Newsholme explains why it can be a good idea to seek advice.

Seeking advice on financial reporting

Well a lot of companies will have to think quite hard about how they put their pay policies together. And to get a sense for what is and what isn’t going to be accepted in the marketplace and the degree to which you need to call on external resources to help you in that thought process. I think certainly there will be a good deal of one company looking to see what the others are doing as the new legislation takes effect. I think trying to present, for example, director’s remuneration for one year as one single figure will probably prove quite challenging because, as I have said, it can be made up of many different components. The reporting element of it is still going to present some challenges.
Inside Finance TV will continue to bring you expert perspectives on issues like financial reporting.

Financial reporting requirements

Financial reporting is a long procedure. In this TV show Sarah Hawes discusses complex process of disclosure for directors.

Financial reporting follows multiple legislations

It is complicated because of the number of places that company secretaries, directors, or other advisors need to look to, to find all of the various requirements. For example to prepare what needs to go in an annual report about directors you are going to need to look in, as a minimum, in the Companies Act 2006, the relevant secondary legislation made under that act, the corporate governance code and the institutional investor guidance. There isn’t an easy one place to look and these are all the things you need to put in and then it’s tick tick it’s done.
If you are interested in financial reporting look out for more Inside Finance TV shows from finance experts like Sarah Hawes.

Transaction services from Smith & Williamson

Transaction services from Smith & Williamson

Transaction services at Smith & Williamson is headed by Philip Quigley. He discusses his role in this TV show.

UK transaction services

I head up transaction services, that covers financial due diligence, reporting accountant and valuation services, which is not my particular area. We have a team based in London and in Bristol and Southampton. And we generally cover the marketplace in terms of those services.

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Tax law – Three vital tips for private clients

A finance advisor will help you understand what you need to do to comply with tax law. In this TV show Smith & Williamson's Chris Springett explains the best process to follow with your advisor.

Tax law for property

One is record keeping, record keeping absolutely vital, making sure that they retain the evidence that they were living at the property, when they were living at the property.
Secondly, come to us early. There’s, under the legislation there’s an ability to make an election, if you own two or more properties and you want to decide which one is your main residence for the purpose of the relief, you can make an election.
So again, if we can do that, there is a time limit on that, so if we do that earlier then that’s great.
And then I suppose finally, when coming to sell the property, again let’s have a chat, see what’s happened, put together a timeline and perhaps there might be something to do at that stage.
It’s a lot easier to do it at that stage than after the sale has happened and we’re looking to piece together stuff from perhaps 5/10, even 15 years ago.
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For more discussion on tax law, keep checking back on Inside Finance TV

Business risk investigations

Business risk investigations

Business risk can be discovered by looking at finances of the past, present and future, as Philip Quigley explains in this TV show.

Business Risk - Past financials and future projections

There’s two basic elements. I suppose the first is the review of historic financials.
So are the targets numbers believable or are they properly prepared and been properly audited etc?
And secondly, going forward what’s the combined business going to do? So we will look at both the historic numbers and the forward projections. We’ll do that by discussing with you what you want, discussing with the target, how they run their business, and trying to pull together where the risks lie in terms of the business model.
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If you found this TV show about business risk interesting, why not browse more interviews and briefings on Inside Finance TV.

What is due diligence in finance?

What is due diligence? Smith & Williamson's Philip Quigley explains what he does when working with people who are buy a business.

What is due diligence?

A financial due diligence process is a pretty, it’s an in depth review. And it’s not just financial, it moves towards commercial. It’s not really about does x agree to y. It’s about do I understand the business I’m buying? Do I understand the financial dynamics? Is it different from my business? Why is it different from my business? Can I get to the stage that they’ve got to?And you really need, if you’re doing a transaction, you’ve got so many things to think about, the financial due diligence, the legal due diligence, the HR due diligence and you’ve got to deal with your nomad. So you’re going to have to outsource the financial due diligence. This is what we do.
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What is due diligence? is just one of many question Inside Finance TV has posed to its many knowledgeable interviewees.

Record keeping is important

Record keeping should be done thoroughly from the start. In this TV show Smith & Willamson's Chris Springett discusses property ownership and case law.

Record keeping and Property

Recent case law in the area it really does highlight just the importance of record keeping.

I mean for us in the profession it’s something that obviously we discuss with clients quite carefully to make sure that all the documents are there.

But recent case law where people haven’t been able to prove that they’re using the property as a residence, that alone, it’s their main residence and so entitled to the relief.

Yeah, the case law has been very much based on the fact that these individuals couldn’t produce the evidence.

So even things such as making sure that you’re retaining gas bills and electricity bills to more useful or even more interesting uses of maximising the relief such as making sure your post from the tax authority goes to that address.

So then they can’t claim that you weren’t living there if that’s where they’re writing to you at.

And it’s these sort of matters that, you know, if we can get talking to clients early when they perhaps get their second property or where they’re perhaps looking to expand their property ownership, that we can start from day one, rather than trying to prove something after the fact.

The first step towards FRS 102

The first step towards FRS 102

The first step is to work with an organisation like Smith & Williamson to really understand your needs and requirements around FRS 102.

So this is when we would bring our people to talk to you and your key finance function people just to get a sense of what needs to be done.

From that we would put together a bespoke proposal that addresses the key things that are going to be important to your organisation as you move forward with designing the solution and assessing the options and implementing the changes.

A four-phased approach for FRS 102

A four-phased approach for FRS 102

We’ve developed a really client friendly simple way of looking at FRS 102 and how to implement it. It’s a simple four phased approach.

We start off phase one, which is assessing the options. So we look at what the potential impact of FRS 102 is for your organisation, we do a readiness assessment, an impact assessment, look at some of the accounting options and the tax treatment.

And we look at whether your organisation from a resource point of view is ready to implement and execute the changes. So phase one is all about understanding.

Phase two is designing the solution. So this is when we work with our clients to put the programme of activity together, the project management, the governance, the resource requirements, the training, the communication with the variety of stakeholders within your organisation.

So this is all about having the plan and the model and the framework to implement FRS 102, which leads us on to phase three, which is all about implementing the changes. So this is working with you, bringing the resource to make sure that everything that has been designed and that we said we need to do actually happens, working with your organisation, with the people in your organisation to implement every aspect of the FRS 102 requirements.

And then finally phase four is around assuring the outcomes. So this is to give you independent and objective assurance that what is being done is accurate and correct, reporting to the board and reporting to other stakeholders about what has been done, providing that assurance around the outcomes of FRS 102.

Helping companies not to miss the compliance boat

Helping companies not to miss the compliance boat

My role is as a partner in Smith & Williamson Southampton office. So I’m involved in corporate audits, other assurance work, largely in corporate, social housing and the charity sector.

The size and range of businesses, for our corporate clients it’s anything with a turn ... any companies with a turnover from say 5 million up to about 100 million in a full range of sectors, some retail and technology, a lot of businesses with international interests.
Then on the not for profit side, we look after a lot of housing associations, looking after registered providers of social housing with anything from 100 bed spaces up to 25,000 houses for rent in the social housing sector.
And then as well as that we look after a number of charities as well.

At one level straightforward, but there’s a lot of detail to be aware of and companies can miss any one of those things, and we’re there to catch them and make sure they’re compliant with everything that needs to be looked at.

Potential impacts of FRS 102 not fully realised

Simply, I don’t think they are. I think most organisations are aware of it.

The standard itself is a pretty weighty tome, it’s very complex and is difficult to understand.

And so inevitably I think, most organisations recognise they need to do something but haven’t really explored the full impact and effect it will have on both them as an individual, but the finance team that they’re part of and the organisation that they’re part of.

So people, I don’t think have really yet grasped the potential impact of what this could mean.

Why FRS 102 matters to stakeholders

Why FRS 102 matters to stakeholders

Where we have reported a profit in the past, it might now appear as a loss, may have significant assets, they might be reduced.

Now, every stakeholder needs to understand that and it might go the other way round, you might have reported a loss that now appears as a profit. But every stakeholder needs to know that because if you’re a banker looking to lend money to a company, they’ll need to understand why it’s different.

If you’re a shareholder looking to maximise return when you come to sell your business you need to understand what it is that’s different about the financial reporting standards so you can explain that to would be buyers who are not just flicking through thinking, you know, why does this look so different to what I might have expected in the past from a set of accounts for a company.

FRS 102: An accounting revolution

And it will fundamentally change the appearance of company accounts. It’s all about convergence with international standards bringing the UK accounting practices into line with international standards.

And although it has been a long time coming, even when we get there the new UK converged standard, there will still be some pretty significant differences with International Financial Reporting Standards.

FRS 102: The importance of assessing potential impacts

The complexity will depend on how complex an organisation you are yourself, how many subsidiaries you have, you know, whether you’ve recently done any mergers or acquisitions. So it will depend from organisation to organisation. The key thing is to really understand what the potential impact may be.

And that has to start somewhere, so one of the things we look at is, and we talk about is a readiness assessment which looks at how ready you are as an organisation to implement the changes associated with FRS 102, whether you have the right volume of resource to do that, whether you have the right type of resource in terms of the technical ability and actually indeed whether you have the time and the focus to really invest what is required to ensure a seamless and efficient implementation.

The benefit of greater clarity in reporting

Caroline Newsholme, Partner, Nabarro on the benefit of greater clarity in reporting

They should seek greater transparency around the pay that directors get, make it clear where performance levels have been achieved or haven’t been achieved and what the impact on that is on directors remuneration packages.

I think they also need to be careful about exit payments, so where a director is departing, making sure that they’re not rewarding someone for failure. So I think they need to be much more open and clear about these points. I think they need to simplify directors’ remuneration packages as well.

Often there are many components to directors’ remuneration, so unless you can carefully add up all the elements it can be quite difficult to get an overall feel for just how much one individual is getting.

And I think some simplicity in structuring remuneration packages would be very beneficial.

I think there’s a combination of things. The first thing you’ve got to do unfortunately is invest some time in getting to understand what FRS 102 is all about.

And it may be the easiest route is to talk to us and we’ll give you the overview.

You then need to do a more forensic examination to go into individual accounts account codes and understand precisely what the repercussions will be.

Then you’ve got to map out in quite some detail, exactly how you’re going to move from where you are at the moment to where you need to be in the future and then finally you’ll need a process that gives you assurance that you’ve picked everything up and that what you’ve done works.

The implementation of FRS 102 is probably the largest single change to an accounting framework for the majority of companies in a generation. Not only that, it will also impact on profitability of businesses, the way their accounts looks and because of the impacts on tax, it means that there will be proper real money effects as well.

The way that tax is accounted for in the UK, is that the tax payments often, under many situations follow the accounting rules. When the accounting rules change, therefore the amount of tax you have to pay also changes. This means that when you dot the new FRS 102, you will be paying more or possibly less tax, depending on the effect that it has on your profit and loss.

I think people have heard about it. They heard it’s coming, lots of people haven’t really understood the impact it’s going to have on their accounts. And lots of people don’t realise that it’s going to have that real money effect that we were talking about. It is a huge change and the devil is in the detail.

When you throw out all the current accounting standards and replace them with one, that is going to have a huge effect.

It’s going to be a drain on resources for finance directors and finance teams, there’s absolutely no doubt about that.

In terms of the changes, whilst they are mostly taking effect or will have to be adopted by 30th of December … sorry, 31st of December 2015 year end, there will be a transition date and you will have to prepare comparatives.

That brings it forward effectively to the 31st of December 2013, which as we know isn’t that far off.

FRS 102 will change your profits

One of the biggest changes will be in the area of financial instruments.
FRS 102 follows much more the IFRS standards that are in place for listed businesses, this means that a number of businesses will find significant changes in their volatility of the level of profits.

Well, it’s very fundamental because although a lot of the terminology is similar, in practice it’s a bit like learning a language and having completely new grammar.

There’s a whole series of series of changes which are quite fundamental, some of which could mean that the financial statements look completely different, profitable businesses suddenly look loss making and vice versa. But there’s a whole stream of things that previously you did not even have to recognise in the financial statement which you now will need to recognise, particularly financial instruments.

Well primarily because UK GAAP is on its own. And the world is moving in an IFRS - International Financial Reporting Standards direction.
And the thought process is, that if everybody in the whole world applies broadly a consistent accounting framework then there’ll be spinoff benefits, so that investors in Thailand can invest in England or any other country.